With shareholder power virtually synonymous with motherhood and apple pie, many American corporations are finding it makes sense to adopt a conciliatory tone toward disgruntled investors.
Investors began putting the squeeze on companies offering directors fat pension benefits just a little more than a year ago. And by the end of last month, more than 18 companies targeted by the Investors' Rights Association of America, a Great Neck, N.Y., grass-roots shareholders group, had agreed to cut plans for their non-employee directors.
Among the IRAA targets that dropped the plans are Kaufman & Broad Home Corp., Melville Corp., Merck & Co. Inc., New York State Electric & Gas Corp., NYNEX Corp., Sun Co. Inc., Time Warner Inc. and Westinghouse Electric Corp. In fact, Burlington Resources Inc. and Kellogg Co. decided to cancel outside directors' pension plans even without a nudge from shareholders. And nine others had agreed to pay half of their directors' annual compensation in stock.
The California Public Employees' Retirement System two years ago began grading corporations on their corporate governance practices, and urged them to adopt policies that protect shareholder value through what they deemed good governing practices. Just recently, a survey of more than 800 corporations by the American Society of Corporate Secretaries found nearly half of them had either adopted or were seriously considering formal guidelines on their board structure and governance issues. Additionally, more than two-thirds of the companies surveyed require the majority of their directors must be non-employees and almost half of them insist their outside directors conduct a formal review of their chief executive's performance.
At the same time, fewer companies asked the Securities and Exchange Commission for permission to omit shareholder requests from their ballots this year. The SEC received 352 such requests by April 4, about 6% less than received by the same time last year, according to an SEC official who did not wish to be identified.
"Companies would rather talk than fight," said John C. Wilcox, chairman of Georgeson & Co. Inc., the New York proxy firm that advises many corporations. "We advise companies when a shareholder proposal is sent in to them to talk first, and find out if there is an agenda, rather than getting lawyers and going to the SEC" to attempt to get proposals knocked out, he added.
In another sign of the more cooperative mood between shareholders and corporations, the Council of Institutional Investors, the influential Washington group that represents most of the vocal institutional investors, elected a corporate executive as one of its three co-chairmen.
Martin A. Coyle, general counsel and secretary of TRW Inc., once was the head of the group representing corporate secretaries, traditionally considered archenemies by activist investors.
"When corporations were not represented in the council's membership, or didn't have a voice, you were losing an opportunity to hear from and share ideas with a key player in the governance area. Now the issues that corporations have will probably receive a little more study within the council," said Michael Goodman, a spokesman for the American Society of Corporate Secretaries, New York.
But even as companies are generally becoming more attentive to the requests of their shareholders, some investors are becoming more strident in their demands. So, despite many of the settlements reached between companies and shareholders, the number of proposals expected to be put before a shareholder vote at annual meetings was up to 214 as of the beginning of April - not counting those on socially oriented issues - from 123 corporate governance proposals tallied by Georgeson a year ago.
Raising the noise levels the loudest are two groups of investors - organized labor and the IRAA. Organized labor, late-comers to the activist arena, have been helped by observing and learning from the large public pension funds that led the activist shareholder movement in the mid- and late 1980s.
Organized labor is "picking better target companies - poor performers - so people are apt to listen to what anyone who is trying to effect change is saying," said Jill Lyons, head of the proxy advisory service at Institutional Shareholder Services, a proxy consulting firm in Bethesda, Md.
Typically, labor groups tend to raise issues at such companies they know will get the wholehearted support of public pension funds and other institutional investors - eliminating anti-takeover defense mechanisms, ensuring the majority of the company's directors are non-employees, asking that shareholder votes be kept confidential, and others considered the mainstay of good corporate governance practices.
Recently, the International Brotherhood of Teamsters, Washington, created a stir when it named America's "least valuable directors." And in an unusual attention-getting tactic, the IBT General Fund plans to raise a request at Union Pacific Corp.'s April 19 annual meeting itself, instead of asking the company to publish the resolution in its ballot. The union represents employees of two Union Pacific divisions. The Teamsters' general fund, which owns 25 shares of Union Pacific, intends to ask the company to name a non-employee as company chairman, ousting Drew Lewis, who also wears a second hat as the chief executive.
"It frees us up to make longer arguments," Bartlett Naylor, a Teamsters economist said. He added, however, that this was the only tactic available to the Teamsters because by the time the union decided to act at Union Pacific it was too late to get the SEC approval for a written shareholder proposal to appear in the company's proxy. The Teamsters want Union Pacific to have an outside chairman because "Drew Lewis is showing up as one of the most overpaid directors."
One such corporate governance initiative that is catching on in a big way is a shareholder demand that directors of laggard companies hire investment bankers to examine ways to restore shareholder value by selling all or parts of the company. Ms. Lyons estimates at least a dozen such proposals have surfaced this season.
IRAA, for example, which doubled the number of proposals it presented to companies to 120 this year, is already preparing to ask the top brass of at least 10 underperforming companies in the 1997 proxy season to sell or merge their companies.
Because such proposals spotlight laggard companies, it's not surprising many of these initiatives get fairly high votes. "Shareholders have had success in using this process... and that level of success has encouraged proponents to sponsor (more) of these types of resolutions," Ms. Lyons notes.
